Who pays?

Somebody always pays. ALWAYS. Maybe not now, maybe not in obvious ways with a bill in the mail, but there is always a cost when the government does something. Some spending is reasonable, the cost known, understood, and generally agreed to and agreed upon. We can quibble over particular programs or numbers or actions, but nearly all serious people agree that some government spending is a cost we should bear, and paying taxes for it is the way to get it done.

But virtually nobody in politics at the national level is addressing the big-picture elephant in the room. We have a huge official debt (national, state, municipal), staggering future obligations (SS, other retirement plans, etc), and are running an absurdly large annual federal deficit. Simple mathematics says it cannot continue. That which cannot continue, won’t.

SO….

Who pays? There are only four options.

1) We can balance the budget (and keep it balanced !) and start paying down debt by cutting spending down to below revenue levels. That means current recipients of government spending (defense and other contracts, personnel wages, benefits payments, cutting programs, etc) pay right now in obvious ways. Congress has constantly shown they are utterly unable to do that.

2) Raise tax revenues until it balances. Not just raise marginal rates, but actually take more money out of people’s pockets. That will crush the economy and cause capital flight like never before. It will cause an economic death-spiral that will be hard to pull out of. It will lead to unprecedented levels of corruption and problems as the ROI of tax avoidance increases, which will spur redoubled efforts at tax collections… with all its attendant abuses and problems. This means that current workers and employers will carry the cost.

[side note – many people will desire to aim for the “middle way” and do some of both (1) and (2), but given the people in DC any attempt to do that will likely result in both missing the target AND incurring the worst side-effects of both]

3) Kick the can down the road a little longer, growing the debt, thereby implicitly demanding our children and grandchildren are the ones to pay impossibly crushing, confiscatory levels of taxes.

4) Screwing all savers – mostly the elderly and retirees – by inflating the debts away, destroying accumulated wealth and money. A variant of this is to simply repudiate the debts, but this is much less likely.

The only political debate I’d like to see over the next year is one where all the candidates kick around that fundamental question, and end by having to pick one of those four options. Or course the media would never ask it, and no politician would attend, but I can dream.

16 thoughts on “Who pays?

  1. You left out option number 5; Pay down the debt, slowly, through massive, permanent tax cuts.

    Huge tax cuts, combined with major simplification of the tax code and reduction of “regulatory” obstacles to doing business will result in a tsunami of new activity combined with the return of huge assets currently held overseas, plus new influx of capital from around the world. In a word; Capitalism. Cut the taxation rates and other inhibitors to wealth creation, and the problem goes away. It has to be permanent though, or it won’t work. People will be reluctant if they smell a trap.

    But no one even sees that as an option anymore, so we’ll look at the various ways to fail instead. If you need a way to understand it; we’re waaaay, waaay far off on the wrong end of the Laffer Curve.

    THAT is what we need to understand.

    There are several old Progressive institutions and federal departments that need to be eliminated as soon as possible too. Get us out of the W. Wilson, FDR era we’re in, and things will start shaping up. Peel back the layers upon onion layers of Progressivism. We can start with the TSA and DHS, and keep right on peeling away until we get to Soc Sec, the Departments of Labor and Education, and keep right on going until it’s all cleansed from Progressive theories and programs.

    If we espouse capitalism, then let’s have the real thing, unadulterated, or as close as is possible. If that’s to be see as not even an option, we’re screwed, as the enemy has truly defeated us. If we can’t even define the disease (Progressive authoritarianism) what good will it do to look only at the symptoms? And if we can’t come out of our funk and define the cure, what hope is there for us?

    • You know what a lot of wealthy countries have that we don’t, e.g. Switzerland? Real banking privacy. That tends to help criminals, but being a strong haven against taxes and asset confiscation had substantial benefits while it lasted. Investment money used to flow into this country from all around the world…

      • There are other countries with better privacy now than Switzerland, real privacy there has eroded considerably over the last 50 years. Grand Cayman, but I don’t know how private THEY are anymore, given how governments don’t like anything closed to them.

    • Yes, we are way too high up the Laffer curve. Yes, we should simplify the tax code and cut taxes. Yes, growing the economy is a fine thing. And doing those would mean choosing option 2 (raising revenue), so you have to say who from? firing accountants and lawyers? or somebody else?
      BUT.
      a) We have to at least balance the budget before we can pay down debt, and we can’t even get that far, because the second we are even close to that either new spending or more regulation that will effectively take away the saving from the tax cuts, because EMERGENCY! Regan tried the tax cut angle, and revenues did indeed rise, but spending rose far faster. That WILL happen again, because politicians and spending are like drunks and a free case of booze.
      b) We have way to much debt curve. If interest rates return to anything like historical averages (call it 5% and change), then just servicing debt rises to 5%+ of $18T, or about a trillion dollars, up from the current ~quarter trillion. Meanwhile, costs related to bailing out states and municipal retirement plans are growing rapidly. Combine, these things are simply too large. Somebody will pay – current recipients, current tax-payers, or the children (either recipients or payers).

      • It gets really easy to pay down the debt when you start with a federal government that does the things authorized in Article 1 Section 8 of the Constitution, and no others.

  2. To amplify what Lyle said about getting out of the Progressive Era thinking, I can echo what my economics professor at large west coast Catholic University said in 1976 about continuing to try the same old medicines that no longer seemed to work at all, which caused tremendous waste of the ultimate scarce resource, which is [the mind, imagination and energy of] people.

    As to the options to solve this horrid mess, Number 1 would be the responsible thing to do, particularly if our population and elected representatives were able to imagine a future beyond later-this-year, but judging from history and politics, Number 4 is more likely, given that it is the solution the evil party and the stupid party don’t have to explicitly vote for.

  3. Another way to pay down debt is to grow the economy, increasing GDP, which will increase tax revenues without any increase in tax rates.

    This economic growth actually led to a nominal lack of a budget deficit during the Clinton years (while having essentially zero to do with Clinton’s policies). Had the Republicans under GW Bush not spent like drunken sailors in a bawdy house, the effect might have continued for a bit longer.

    Another way to reduce debt is to repudiate it. For example, if China attacks anyone over the Spratley Islands, the US can decide that China’s holdings of US debt are now upgefucht, and forgotten. That usually leads to messy wars, however.

    • Great theory, but we are too deeply in debt to do that, and congress has proven time and again that they cannot and will not live within their means. That, coupled with crippling debt that must be serviced, makes growing the economy nearly impossible. We can print money, but we can’t print customers or wealth. The economy is changing, and manufacturing is so efficient that we can produce far more than survival-level needs, leading to massive employment dislocations.
      We have to force politicians to state explicitly who is paying for spending – balance now by cuts, balance now by increasing taxes, screwing savers (the elderly), or screwing future generations.

  4. I like the debt brake idea. Spending is capped at the 5 year rolling average of tax receipts, EXCEPT in time of a declared war. Excess revenue is first used to pay down debt. Any remainder rolls forward to future budget years and can be used there. If you have a downturn, you can borrow a bit to get by, but when things pick up again, the debt is paid down first. It also means that the revenues actually come through from any tax increases before they’re spent instead of just relying on what they bring in theoretically.

    • It seems like a fine idea until you recognize it would be a Constitutional amendment — which the Federal government will treat with the same utter contempt that it treats all of the Constitution as it exists today.

      Compare Article 1 Section 8 with the current activities of the Federal government. Or read a typical day’s worth of the Federal Register (which amounts to 200-300 pages on average) and see if you can find anything at all that is authorized by the Constitution. You might, once in a while, a page or two here or there. But for the most part, you’ll find clear proof of what congresscritter Clyburn said some years ago:

      “There’s nothing in the constitution that says the Federal government has got anything to do with most of the stuff that we do.”

      So in other words, new constitutional amendments won’t do us any good at all, exactly for the same reason that new gun laws won’t help us be safer. In both cases, the problem is the criminals who ignore all the current laws.

  5. It is astounding how those who would “lead” us refuse to acknowledge our desperate situation. Likewise, you can be sure that IF they start talking about “spending cuts” what they really mean is a reduction in the rate of increase in planned spending.

    I’ve always had a weakness fro the “Penny Plan”. Cut .01 per dollar of spending per year. Rinse and repeat until we’re again solvent. In other fun topics, we can address eliminating whole areas and segments of government which are not provided for or described in the Constitution. If we massively simply our tax structure and code, the IRS can become a sub-department within the Treasury.

    In truth, I believe it is too late to effect any meaningful reform or change. The change we get will be a consequence of the collapse that’s headed our way.

  6. Anchor babies are, indeed, a problem, and I hate sounding like a lawyer, but there are several variations. How about this:
    1) A child born in the US with married US citizens as parents is a citizen.
    2) A child born to an unmarried US citizen mother on US soil is a US citizen.
    3) A child born to married US citizens outside the US may be granted dual citizenship as long as they spend at least ten of their first 15 years of life on US soil.
    3) A child born in the US to parents married before conception (and are still married) of whom only one is a US citizen, will be a US citizen. This will NOT grant citizenship or voting rights on either non-US parent.
    4) A child born to an unwed non-US citizen mother legally in the nation is NOT a citizen, but will have an expedited adoption-to-citizenship path IF the father is a US citizen who desires to do so. Otherwise mother and child are to be deported when the mother’s visa expires or five years.
    5) A child born to a non-US citizen mother married after conception to the US citizen father, will be granted provisional citizenship, subject to confirmation at age 21 if there are no significant criminal activity and a HS diploma or equivalent. If they fail, they are deported with ALL non-citizen relatives.
    6) A child born in the US to woman not legally in the US will be deported with the mother and cannot become a citizen unless they reach 25 years of age with no criminal record or gang affiliation, spend at least 20 years outside the nation’s borders, have mastered English and at least the equivalent of a HS diploma and a useful job skill.
    7) “Anchor babies” cannot be used as a reason for granting visas, residency, or citizenship to any other relative. Any attempt to do so will immediately push all relatives to the back of the normal naturalization process line.

    • Simplified version: A child born on US soil is a US citizen only if one or both biological parents are US citizens or permanent resident aliens that crossed the border legally and is properly documented.

      I think that covers the bases, and is sufficiently clear.

  7. I was able to attend a briefing by a high level Social Security Administrator, given to VIPs for the Department of Health and Human Services. Current law has them not doing anything until 2027 to 2032. Then the government raises taxes on SS benefits and other federal welfare. Social Security won’t ‘go bankrupt’; they’ll just tax 90% of your social security benefit (100% if you are ‘rich’).

  8. Pingback: Joe lays out the options for dealing with our debt

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